Citi sells FDIC notes, JPMorgan, Meccanica, KBN offer bonds; new JPMorgan active

By Andrea Heisinger and Paul Deckelman

New York, Oct. 20 - Citigroup Funding Inc. and Citibank NA, Meccanica Holdings USA Inc., KBN Kommunalbanken AS and JPMorgan Chase Capital XXVII were among those selling bonds on a Tuesday full of earnings announcements.

The investment-grade bond market was cornered by banks that have already announced profits, and two foreign issuers.

The two Citigroup units sold FDIC-backed bonds in two tranches totaling $5 billion. The deal was split evenly between a three-year tranche and a reopening of a previous three-year note sale.

A source close to the deal said there was a lot of interest in the bonds, mostly because it will likely be the last time the bank will tap the FDIC-backed bond program.

JPMorgan Chase sold $1 billion of 30-year trust preferred securities through one of its funding units. It reported a third-quarter profit the previous week.

Meccanica Holdings is a U.S. unit of an Italian industrial conglomerate. It sold an upsized $500 million of notes due 2040.

The first deal to get done for the day was from KBN Kommunalbanken - a Norwegian financial services company. The sale was $1 billion of five-year notes that priced in the morning after going overnight from Monday, a source said.

Among the established issues in the secondary arena on Tuesday, a market source said the CDX Series 13 North American high-grade index was 2 basis points wider versus Monday's level, at a mid bid-asked spread level of 98 bps.

Advancing issues led decliners for a third straight session Tuesday by a better than three-to-two margin.

Overall market activity, reflected in dollar-volume totals, jumped 38% from Monday's pace.

Spreads in general were seen wider, in line with mostly lower Treasury yields; for instance, the yield on the benchmark 10-year government note narrowed by 5 bps on Tuesday to 3.34%.

Traders said the key secondary credit of the day was the new J.P. Morgan Chase trust preferred securities due 2039, as well as the new Meccanica Holdings issue.

Citi units tap FDIC bonds

Citigroup Inc. units Citigroup Funding and Citibank sold $5 billion of notes late in the day in two tranches backed by the Federal Deposit Insurance Corp., a source close to the deal said.

It was "definitely oversubscribed," he said, and will likely be the last FDIC-backed sale from the bank.

"There was a lot of interest because of that," he said.

The $2.5 billion of new 1.75% three-year notes priced at 42 bps over Treasuries.

The company also reopened its 1.875% notes due 2012 to add $2.5 billion. They priced at Treasuries plus 30.8 bps. The total issue size is now $5 billion including $2.5 billion previously sold.

Citigroup Global Markets was bookrunner.

The financial services company is based in New York City.

The sale did not surprise a market source away from the deal.

"The deadline [to issue] is coming up, so they probably figured it was their last chance," he said. "They're one of [the banks] that keeps coming back to the well."

The Temporary Liquidity Guarantee Program has been extended past its original shelf life of Oct. 31, but there are strings attached.

The market source said that the "fees are punitive" to issue, with a 300 bps fee to sell under the extension program, he said. This is double what the rate is now. There will also be a stringent application process.

"It's basically a statement to the market that they [the company] is really not doing well," he said.

Some of the smaller, regional banks may still try to issue FDIC-backed bonds before the end of the month, but there likely won't be many.

"Some don't like the stigma of TLGP," the source said. "It tells investors that they're not totally confident to issue on their own."

JPMorgan sells trust preferreds

JPMorgan Chase Capital offered $1 billion of 7% 30-year trust preferred securities at Treasuries plus 287.5 bps, a market source said.

J.P. Morgan Securities ran the books.

The funding arm of the financial services company is based in New York City.

Meccanica sells $350 million

Italian-based company Meccanica Holdings USA sold an upsized $500 million of 6.25% notes due 2040 at Treasuries plus 210 bps, a source close to the sale said.

The size was initially $350 million, he said.

The deal was done via Rule 144A and came tighter than talk of the 225 bps area.

The sale was "wonderful," the source said. It was guaranteed by parent company Finmeccanica SpA.

Bank of America Merrill Lynch, Citigroup Global Markets, Goldman Sachs & Co., J.P. Morgan Securities and Morgan Stanley were bookrunners.

The U.S. unit of diversified industrial group Finmeccanica is based in Rome, Italy.

Banks, foreign names sell

Earnings season continued to mute the primary market, with banks that have already announced Q3 numbers and foreign companies taking up the bulk of volume

The coming day will see two of the remaining large banks to report earnings. Wells Fargo & Co. will be the most watched, and Morgan Stanley is also giving numbers.

"I think everyone is just waiting to be done," a syndicate source said of the stream of earnings announcements. "Thursday should be interesting. We could see a few deals."

It's also possible that some of the investment-grade-rated companies that reported earnings on Tuesday will issue in the remainder of the week, the source said. Among those names were drug-maker Pfizer.

The market "started firm," a market source said. "Earnings were better than expected," he added, quoting Lockheed Martin Corp. and Coca-Cola as names that beat analyst earnings projections.

Home sale numbers and the equity markets dragged the bond market's tone down as the day progressed, but it ended on a "decent tone," he said.

KBN Kommunalbanken offers five-years

Norway's financial services company KBN Kommunalbanken priced $1 billion of 2.875% five-year notes in the morning at Treasuries plus 62.25 bps, a source away from the sale said.

The sale went overnight from Monday, which was why it priced so early, a source said. "I think they wanted other markets to have a shot [at investing]," he said, referring to Asian and European investors.

Bank of America Merrill Lynch, Morgan Stanley and RBS Securities were tapped as bookrunners.

Meccanica moves up

When the new Meccanica Holdings 6.25% bonds due 2040 were freed for secondary dealings, a trader saw the $500 million issue - upsized from $350 million originally - having come in to a spread over comparable Treasury issues of 199 bps bid, 192 bps offered.

A trader saw a two-sided market at 198 bps/192 bps for $2 million of the bonds.

That contrasts with the 210 bps over spread at which the company priced the bonds earlier in the session.

Foreign issuers fill the vacuum

The Italian company's big deal was one of just several recent deals coming from non-U.S.issuers, including Tuesday's deal from Norway's KBN Kommunalbanken, Monday's deal from a unit of Spanish banking giant Santander and the transaction from Singapore's state-run Temasek Holdings.

Meanwhile, after a flurry of recent deals from domestic issuers like Cantor Fitzgerald, Deere & Co., American Tower Corp. and New York Life Global Funding, that kind of deal has tapered off.

The foreign entities, a trader said, "are on a different reporting calendar" than domestic companies, many of which are in the "blackout period" preceding the release of quarterly numbers, which has thus curtailed domestic deal making.

"I haven't heard too much chatter on how much was coming to market this week - but I would imagine that if not next week, then the following week, [domestic issuance] will pick up before we get into the Thanksgiving holiday" in late November.

Earnings had little impact

The trader said "surprisingly, I didn't see much flow on any of the names" of high-grade industrial companies reporting earnings late Monday or on Tuesday, such as Caterpillar, DuPont, Coca-Cola, Pfizer and United Technologies. The 2039 Pfizer bonds traded "on decent size, but for the most part, it seemed like a lot of bank and finance trading."

In that sector, Citigroup's 8½% notes due 2019 were the most active, tightening about 7 to 10 bps to around the 290 bps over, from recent levels around 300 bps.

J.P. Morgan 'the focus'

A trader said that the new J.P. Morgan Chase trust preferred securities due 2039 "was the focus" in the financial sector, "as soon as it was announced."

He quoted the $1 billion issue as having tightened to 276 bps bid, 274 bps offered from the 287.5 bps level at which the securities had priced.

However, another trader said that New York-based banking giant's new issue was being quoted at a wide 285 bps bid, 270 bps offered, followed by a 283 bps bid. "Then late in the day, there was a seller," and the bonds were offered at 275 bps over.

Price talk "was in the high 200s, so it came in line with where they were talking."

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